Recently, Sangamo Therapeutics (SGMO) announced an extensive collaboration with Biogen (BIIB) to develop gene therapies for neurological diseases, comprising of Alzheimer's disease and Parkinson's disease. Sangamo is to receive a $350M from an upfront payment and proceeds from a stock purchase. The Biogen collaboration will be added to an impressive list that comprises of other big-name players such as Pfizer (PFE) and Gilead (GILD). Sangamos partnerships and collaborations are one of my primary reasons for making an early investment in Sangamo, so, I am even more bullish on SGMO following a collaboration with one of the leading neurological companies in the world.

I intend to review the details of the Biogen deal and why I am even more bullish on SGMO. In addition, take a look at the companys current market valuation in order to defend a long-term investment. Finally, I take a look at the charts to lay out a plan for starting a position in SGMO.

The Biogen collaboration will utilize Sangamo's ZFP technology to control the expression of tau and alpha-synuclein genes that are thought to be responsible for Alzheimer's, Parkinson's, and 10 other neurological targets. In return, Sangamo is expected to receive a $125M upfront payment and $225M in proceeds from a stock purchase at $9.21 per share. In addition, Sangamo is eligible for up to $2.37B in other milestone payments and could claim "high-single-digit to sub-teen double-digit royalties on net sales."

In terms of responsibilities, Sangamo will be take on the early research activities and the development of the AAV delivery vectors and ZFP-TFs. Once Sangoma has finished their preclinical work, Biogen will take over and will take the programs through the regulatory pathway and commercialization.

This collaboration is a significant event for Sangamo for a number of reasons. Personally, I find it extremely bullish that one of the worlds leading neurological companies has tapped Sangamos technology to take on some of the worlds most notorious neurological diseases. In addition, the details of the collaboration show that Biogen is dedicated to Sangamo with an impressive financial commitment and is now one a large shareholder of the company.

If these neurological programs are successful, they could be the first products that actually slow or stop the progression of these diseases with a one-time treatment. Obviously, this would be a medical breakthrough and could change the way we treat some of the worst diseases known to man.

The Sangamo-Biogen collaboration will use the company's ZFP technology to develop genomic therapeutics that switch genes on and/or off in the brain that are responsible for neurological diseases. Sangamo has announced that the ST-501 program will target tau and the ST-502 program will target alpha-synuclein. These programs will employ Sangamo's zinc finger protein transcription factors ZFP-TFs, which is a genome regulation technology that uses adeno-associated viruses AAVs.

ZFP-TF has already shown some success in neurological diseases such as Huntington's and ALS. Sangamo presented preclinical data at the companys R&D Day, which showed that more than half of the ZFP-TFs tested reduced the total alpha-synuclein levels by greater than 50% in ex-vivo cell culture system. So, it looks as if ZFP-TF could address the underlying source, by repressing the genes expression at the DNA level with a one-time administration. As a result, I am feeling optimistic that Sangamo's differentiated ZFP-TF technology will show several benefits over other therapeutic approaches.

In my previous article, I discussed how Sangamo has partnerships and collaborations with some of the most distinguished biotech and pharmaceutical companies in the world onboard (Figure 1). Perhaps the most impressive collaborations are Sangamos hemophilia A gene therapy candidate, SB-525, being partnered with Pfizer (PFE). Sangamo transferred their SB-525 IND to Pfizer, which activated a $25M milestone payment from Pfizer. Now, SB-525 will be entering its late-stage of development and could be the companys first licensed product.

Figure 1: SGMO Partnerships (Source: SGMO)

In addition, the company has a partnership with Sanofi (SNY) for sickle cell disease and beta-thalassemia. Sangamo also has collaborations with Takeda Pharmaceuticals (OTCPK:TKPHF) and Gileads (GILD) Kite Pharma. It is important to note that these partners entered agreements with Sangamo at an early stage of development and were willing to agree to big financial commitments to Sangamo in order to get a piece of the action.

Thus far, Sangamo has brought in around $700M in license fees, milestones, and equity from these partnerships or collaborations. Sangamo could pull in up to a cumulative $6.34B in potential milestone payments from these partnerships.

Looking at the names in figure 1, we can say the company has a knack for attracting and closing major deals. Not only am I bullish about the details of these partnerships, but I also bullish about managements ability and willingness to sign big-name partners. Most developmental biotech/pharma companies would kill to get one of those names associated with their company and technology. Meanwhile, Sangamo has five big names willing to make major commitments before the company has marketed therapies. These partnerships should supply significant milestone payments that can be used to fund the companys impressive pipeline and OpEx. Looking at figure 2, we can see that Street analysts expect Sangamo to start collecting on these milestone payments and eventually royalties in the coming years (Figure 2).

Figure 2: Estimated Annual Earnings (Source: Seeking Alpha)

Currently, the SGMO is fairly valued for its expected 2020 annual revenue, however, it is considerably undervalued when looking at the companys estimated ~$550M annual revenue in 2025, which is a forward price-to-sales of 1.50x. The biotech industrys average price-to-sales of 5x, so we should expect the market to start to recognize the opportunity and the share price will start to be priced in line with the rest of the industry.

Can the company hit $550M? I would point to the estimated $6.5B in potential milestone payments. The company has only collected about $700M, which leaves over $5B of potential milestones to get dispersed in the coming years, therefore, $550M in revenue isnt impossible.

What is more, the company expects their near-term cash from Biogen, combined with the company existing cash to be sufficient to potentially get through Pfizer's first BLA filing of SB-525 for Hemophilia A and beyond. So, it possible that we have little-to-no dilution in the coming quarters.

This historic market sell-off has hammered small-cap biotechs and SGMO has not been immune. Admittedly, the charts are far from looking bullish, so I am waiting for SGMO to show some signs of support before hitting the buy button.

Figure 3: SGMO Daily (Source: Trendspider)

I am looking for a double or triple bottom to ensure a level of support has been formed. Once the stock is able to clear the high of the formation before committing to a buy. Although SGMOs valuation points to the buy, I am not going to bind my cash to a ticker that is being dragged down with the rest of the market.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SGMO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Original post:
Sangamo: Adding Another Partnership To The Bull Thesis - Seeking Alpha

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